Thursday, April 25, 2024

Savings through merger

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WHEN THE DUST SETTLES on the merger between Cable & Wireless (C&W) and Columbus in Barbados, the combined entity will be saving $214 million in operational costs initially.

And “overall”, the amalgamation will have annual pre-tax cost savings of about $170 million and $290 million in “one time capital expenditure synergies” in “the first three financial years post-merger”.

That’s what C&W and Columbus communicated to the Fair Trading Commission (FTC) in their merger application submitted in November last year and approved with 14 conditions about two months ago.

This was revealed in the FTC’s expanded report on the merger decision, in which the telecommunications regulator questioned whether Barbadian consumers will truly benefit form these cost savings.

In the 74-page report, the FTC also said that its “specific structural and behavioural conditions” attached to the merger were necessary because without them the C&W and Columbus partnership was “likely to affect competition adversely”.

“In the medium and longer term, the applicants stated that the transaction will give the combined business a greater incentive to invest in expanding the fibre network than either company would have had independently. It is further anticipated that this investment would lead to wider fibre coverage, and would benefit customers and the broader economy.

“As such the applicants argue that the transaction will create significant benefits which translate into the…synergies,” the FTC report stated. It said the companies had explained that the cost savings outlined would enable consumer benefits including better television services, improved data services and accelerated Long Term Evolution services.

However, while it agreed that the merger “will see operational and capital expenditure synergies for Barbados”, the FTC concluded that “these benefits will redound to the applicants given the deficiencies [in economies of scale and scope], as a means of recovering some of the sunk costs in the individual fibre deployment”.

The FTC also said that after analysing the submissions from C&W and Columbus, it concluded that the merged entity would be dominant in the supply of fixed voice telephone and fixed broadband services in Barbados. This, it added, was why the 14 merger conditions were necessary. Those conditions included the sale of a large portion of overlapping fibre cable network to a third party, which will compete with the merged company.

Last week, C&W Communications chief executive officer Phil Bentley said this fibre infrastructure for 57 000 homes was worth at least $60 million and that his company was in the process of finding a buyer for it.

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